There are significant differences between funeral insurance, also known as burial insurance, final expense insurance, and those big insurance policies that cover a family’s finances should the main breadwinner die.

Many Americans don’t have the financial self-control to actually save money to pay the costs associated with their eventual demise. Just look at the popularity of online funeral fundraising pages and car washes for proof. That’s why there’s insurance.

If you’re like many people, you think your group life insurance policy from work will pay for your funeral. Well, yes, it can – eventually. That’s assuming you have such an insurance policy. Many Americans don’t.

Time is Not on Your Side

You may not realize the money from a large life insurance policy typically doesn’t become available until an official death certificate for the insured person is issued by the state. Then it can take weeks or even months to process the claim.

Some families who count on life insurance to cover funeral costs have to scramble to cover expenses right after someone dies. They might access personal savings, use credit cards, or borrow from family and friends.

Think about it – could your credit limit handle a charge of $8,000 to $15,000 for the products and services of a funeral home or cemetery? However, think of the points, the miles if you could! Funeral homes and cemeteries won’t bury or cremate your loved one without some kind of payment upfront. Many accept credit cards and some offer credit plans at need.

With a large insurance policy death benefit, many funeral homes can secure payment through an assignment to cover the costs out of the funds expected. This is essentially a bridge loan from a third party company that charges a percentage for the loan of the funeral costs.

Some life insurance companies offer expedited payment of death benefits, reduced from months or weeks to days. In addition to the quick payout, they offer the benefit of a concierge funeral planning service to do the funeral shopping for you when there’s been a death. Contact me at 505-265-7215 to find out more about this option.

Pre-Need Insurance Options

There are two types of funeral insurance: pre-need funeral insurance issued through a funeral home, and final expense insurance offered by independent insurance agents. Which is better for you depends on your life situation. Let’s look at the pros and cons of both.

Pre-need Insurance

Pre-need funeral insurance is sold through funeral homes by staff licensed to sell insurance. These policies make the funeral home the beneficiary, tying the insured to that funeral home for their services when death occurs. The companies that offer these policies are not familiar to the general public, but they are well-known in the funeral industry. They include Global Atlantic, Homesteaders Life, NGL, and others.

Pros

• Most policies are portable – if you move, you can take the money in the policy and apply it at another funeral home. Make sure this is an option!
• Funeral homes and cemeteries will offer a “price lock-in” at current rates, so the costs remain covered even if the person dies many years later.
• Once the policy is paid up and the information is on file, all it takes is a phone call from the family to have everything taken care of the way the deceased had planned.
• If the funeral home is bought by another company or goes out of business, your money is still protected in the insurance policy.
• Any excess funds left over after the funeral expenses are paid get returned to the family tax-free.
• Pre-need funeral insurance is available to anyone in any medical condition.

Cons

• A funeral home policy doesn’t usually cover cemetery expenses. That requires a separate cemetery burial insurance policy or additional funds.
• If you move and apply the funds in the policy at a different funeral home, the “price lock-in” benefit does not apply. You pay the current rates at the new funeral home, which may be much more expensive than when the policy was purchased.
• Pre-need insurance may not cover all the expenses when the insured actually dies. Costs outside of the funeral home’s control, such as obituaries and motorcycle escorts, rise with time.
• While making payments over time is an option, if the policy owner does not pay all the premiums, all benefits – and funds – are lost.

Final Expense Insurance

Final expense insurance is a small whole life policy that typically ranges from $3,000 to $50,000 in benefits. This insurance is designed for those over 50 years of age and can be issued to people with various health conditions. These policies are sold by independent insurance agents representing companies such as Aetna, MetLife, Mutual of Omaha, New York Life and Transamerica.

Beware of the ads on TV promoting low cost burial insurance! They may be selling term policies that expire with no funds accumulated if the insured person lives beyond the term.

Pros

• You name the beneficiary who receives the funds and carries out your final wishes. Secondary and tertiary beneficiaries can also be named.
• The funds can be used for any kind of expenses, including funeral costs. The money can cover a big life celebration event, airfare for dispersed family members to gather, and outstanding bills that need to be paid.
• As a whole life policy, final expense insurance builds cash value over time through affordable monthly payments that don’t increase, and the benefit doesn’t expire the way term policies do.
• Most final expense insurance policies have a simple application process with no medical examination required, and claims are paid quickly.
• Final expense insurance policies can also be used as a charitable giving vehicle, by naming non-profit organizations and worthy causes as the beneficiary.
• Policy holders can borrow against the cash value of the policy, and proceeds from insurance are tax-free to the beneficiaries.

Cons

• You rely on the beneficiary to carry out your funeral plans, which you have to spell out. They may or may not actually fulfill your funeral wishes.
• Funeral costs will continue to rise and a final expense policy does not “lock-in” current prices at a funeral home.
• Since a final expense policy pays a fixed amount, depending on how far in the future the insured dies, the policy may not cover all funeral expenses.
• Those with certain illnesses or medical conditions will pay more in premiums, and they may not be insurable.

Whether you decide to use pre-need funeral insurance or final expense insurance depends on several factors.

• Your current state of health, age, and income. A terminally ill person will have limited options.
• What your funeral plans entail: it’s best to have an idea before shopping around!
• The availability of family or friends who will carry out your last wishes for you.
• The range of funeral homes in your town and your willingness to visit several candidates to learn more before you give them your business.
• Whether you plan to stay in your current location or move to another town in the future.

Take all of these factors into consideration before you choose pre-need funeral insurance or final expense insurance.

About the Author

Gail Rubin, CT, The Doyenne of Death®

Gail Rubin, Certified Thanatologist, is a death educator and funeral planner who is also licensed to sell insurance in the state of New Mexico. Call her at 505.265.7215 to discuss your funeral planning needs.